Standard & Poor’s Ratings Services warns that the latest hurricane threatening Florida increases the possibility of rating action on insurance and reinsurance companies.

S&P said that it views the approach of Hurricane Ivan, which is projected to be moving toward Florida, with concern. There appears to be a good chance that Ivan, currently a category 4 hurricane over the Caribbean, will strike somewhere in Florida within the next few days.

Standard & Poor’s says it expects that there will be few, if any, ratings actions taken due to the first two big storms of the year; “however, Hurricane Ivan, or any subsequent storm, has incrementally greater potential to adversely affect the financial strength of both primary writers of property/casualty insurance in Florida and, to a lesser extent, the privately owned reinsurers to whom they cede business.”

“The primary reason for this greater potential is not the intensity of the storm itself, but rather, the structure of insurance coverage inherent in the risk management programs of those property/casualty insurers who do business in Florida,” it says, noting that the state insurance plan has already absorbed about US$5 billion in losses from Charley and Frances.

The rating agency says that most private catastrophe reinsurers have limits on the number of events covered in aggregate by their policies, with a requirement that additional premium be paid for reinstatement after a first or subsequent event. “Clearly, for the primary writer who had such a catastrophe policy… the consequences of a third storm could be quite severe, regardless of that storm’s intensity.”

“With all of these thoughts in mind, Standard & Poor’s will be monitoring the events of the next few days very carefully, and, as the situation develops, will have further comment on the effects it might have on both the industry and individual credits.”